Is American Energy Too Cheap?

In February, the Business Council for Sustainable Energy (BCSE) and Bloomberg New Energy Finance (BNEF) released the fifth annual Sustainable Energy in America Factbook (awesome/free, available here). Subsequently, one of the most publicized snippets of the report became this: “In 2016, consumers devoted less than 4% of their total annual household spending to energy, the smallest share ever recorded.”

In context, this is a remarkable achievement. Over the last decade, the United States has reduced total Greenhouse Gas (GHG) emissions by ~13%, increased total renewable generation capacity (including hydro) by 70%, and reduced coal’s share of our national generation mix by 18%. During this same time period, average retail power prices dropped by 7% in real terms, and net energy industry employment numbers sky rocketed. In totality, the only conclusion that can be supported by data: transitioning to a clean energy infrastructure is a net positive (by a lot) for the American economy.

Sourcing Note: the Sustainable Energy in America Factbook is published by organizations (BCSE and BNEF) that are exceptionally credible within the energy industry and represent a diverse set of stakeholder viewpoints; as evidence, representatives from both the American Gas Association and the Solar Energy Industries Association sit on the BCSE Board of Directors.

Despite these facts, two weeks after this data was released, the US Senate confirmed a new EPA administrator who believes: “The American people are tired of seeing billions of dollars drained from our economy due to unnecessary EPA regulations.” As such, most expert analysis with respect to this data has focused on trying to convince Scott Pruitt that he’s factually fighting an imaginary monster.

Lost in the shuffle, however, is a (potentially) really important question: today, the average American is spending less on energy than ever before, is that a good thing? I don’t know the answer, but I think it’s a more complex question than most are acknowledging.

On one hand, there are obviously significant benefits associated with having historically low energy costs: more discretionary income for average citizens, reduced costs for commercial and industrial entities, etc.

Conversely, there are definitely downsides to cheap energy prices as well. For example, the most recent release of the Quadrennial Energy Review indicated that despite record investment in the country’s electrical transmission system over the last several years, national grid modernization programs are currently underfunded to the tune of $350B – $500B. Grid modernization (ie electrical infrastructure investment) is critical for economic, environmental, and national security reasons moving forward; yet we cannot likely afford the required level of investment while simultaneously keeping energy prices near record lows. In essence, Americans are currently benefiting from historically low energy prices in the short term at the expense of making critical medium/long term infrastructure investments.

As such, I think it is entirely reasonable to conclude that American Energy is under priced at present, and that regardless of the methodology utilized, prices need to be raised in some manner in order to fund critical infrastructure development. I understand that is a difficult argument to make in a country where 70% of Americans have less than $1,000 in savings, but this is a discussion that needs to be taking place.